A missed payment of £50 led the owner of the Manchester Ship Canal to terminate a perpetual licence under which Vauxhall drained its Ellesmere Port factory into the canal. The rights were agreed to be worth more than £300,000 a year. The Supreme Court held that those rights were possessory, so the court had jurisdiction to grant equitable relief from forfeiture even though the licence created no proprietary interest in the canal company’s land.
Manchester Ship Canal Company Ltd (MSCC) owns the canal and the adjoining land near Ellesmere Port. In 1961 Vauxhall Motors Ltd acquired land to the south-west for its vehicle factory. Building on that land would reduce its capacity to absorb surface water, so Vauxhall needed a way to discharge surface water and treated industrial effluent into the canal.
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Vauxhall acquired land for its works and obtained a perpetual licence allowing it to discharge water and effluent through a spillway into the canal. It was required to pay £50 each year.
The licence gave Vauxhall three rights: to discharge surface water and suitably treated trade effluent across a defined part of MSCC’s land; to construct, maintain, alter and renew the pipes and works needed for that discharge (the Spillway); and to have access for those purposes. MSCC kept rights to place pipes, lines, roads and other works over or across the Spillway, but not so as materially to interfere with the discharge without providing an alternative. If the £50 was 21 days in arrear, or if Vauxhall defaulted in a covenant, MSCC could require payment within 28 days or a remedy within a reasonable time. Failure to comply allowed MSCC to determine the licence. On determination, Vauxhall had to remove the Spillway and reinstate the land.
Vauxhall built and maintained the spillway on canal company land. Its control of that infrastructure mattered because relief from forfeiture traditionally protects rights in, or possession of, property.
Termination and the courts below
Vauxhall did not pay the £50 due on 12 October 2013. MSCC served notice on 6 February 2014 and, after continued non-payment, notice terminating the licence on 10 March 2014. Negotiations for a new licence at market rates failed. Vauxhall issued proceedings for relief from forfeiture on 6 March 2015.
HHJ Behrens QC held that the rights, if not strictly possessory, were sufficiently analogous to possessory rights to engage the jurisdiction, and he granted relief. The Court of Appeal, in a judgment of Lewison LJ, thought that analogy went too far, but held that the rights were possessory in any event. Whether relief should have been granted as a matter of discretion was contested below. In the Supreme Court only the threshold question of jurisdiction remained. It was common ground there that the termination right was security for a lesser obligation, including payment of the £50. That first condition for relief was therefore satisfied.
What kind of right can be relieved?
Lord Briggs, with whom Lord Carnwath, Lady Black and Lord Kitchin agreed, treated relief from forfeiture as an equitable remedy against the unconscionable use of a strict legal right, but one that must have principled limits if certainty in property and commercial dealings is to be preserved. Two conditions matter. The forfeiture provision must secure performance of a primary obligation. The rights liable to be lost must also be of a kind that equity will protect.
MSCC argued that, for land, nothing short of a proprietary interest would do, so a licence could never qualify. It relied on the settled distinction between a lease and a licence, and on the statement in Gray and Gray’s Elements of Land Law that only a tenant, not a licensee, may seek relief against forfeiture. Vauxhall argued that possessory rights are enough, and invited the Court to go further: any right to use property, real or personal, should engage the jurisdiction once the security condition is met. Neither of those formulations had been the contest in the Court of Appeal.
The authorities on relief from forfeiture distinguish property or possession from an ordinary contractual right to use something. The majority held that a right to possession could attract relief even though the person holding it had no proprietary interest in the land.
Lord Briggs rejected the submission that this possessory boundary should not cross from personalty to land. Certainty matters in land law, but commercial law had already used possessory rights as a workable limit across ships, aircraft, intellectual property and equipment. The Court of Appeal had identified a practical test, drawn from JA Pye (Oxford) Ltd v Graham: a sufficient degree of physical custody and control, and an intention to exercise that control for one’s own benefit. What is sufficient depends on the subject matter and how it is ordinarily enjoyed. A possessory right of that kind falls short of ownership. There was no principled reason to give equity a wider reach over chattels than over land, the original field of the remedy.
He did not accept that every licence would qualify. Many licences grant use falling short of possession, and the proposition that a licensee cannot seek relief would still hold for them. This licence was unusual: it coupled an element of virtually exclusive possession and a high degree of control with a grant in perpetuity. The rights were also very similar to, and more extensive than, an easement, whose forfeiture can be relieved because an easement is an interest in land.
The majority declined to extend relief to every contractual right to use property. It also left open whether a possessory licence would have to be of indefinite duration. Vauxhall’s licence was perpetual.
Were Vauxhall’s rights possessory?
The rights conferred no proprietary interest. MSCC said they were also short of possession: the real right was discharge, the works were ancillary, and MSCC reserved substantial control, including a power to require rerouting. It also said that nothing was forfeited, because Vauxhall had to remove and recover the infrastructure on termination.
Lord Briggs held that the Court of Appeal had applied the right test, and that its application to the facts was not clearly wrong. The works became fixtures and therefore part of MSCC’s land. The question was possession and control of the Spillway itself. The pipes and chambers were in practice accessible only, or mainly, from Vauxhall’s treatment plant, and formed part of a drainage system the rest of which lay on Vauxhall’s land. MSCC had default rights if Vauxhall failed to maintain the works, and a right to reroute them if discharge caused difficulty, but those rights did not alter the reality that Vauxhall built, operated and maintained the Spillway and had exclusive perpetual use of it, subject only to termination for breach. Later permission for MSCC to send water into the treatment plant did not change that: once that water left the plant, the discharge was Vauxhall’s. Removal on termination would have produced only useless debris. In reality, the valuable right of use was forfeited.
Lady Arden’s agreement
Lady Arden agreed that relief can be given where rights in land are possessory only, and that the finding of possession could not be disturbed. She approached the doctrine from equity rather than through the categories of property law. Equity alleviates the strict enforcement of a bargain in appropriate cases, and some uncertainty is inherent because it works by principles and can meet new forms of property. She identified the established preconditions: the right must have been conferred to secure another covenant, and the party in default must be able to perform and pay appropriate compensation. Even then, equity does not intervene in every case. It will not undo an ordinary and lawful commercial bargain in which strict, timely performance is of the essence, as in The Scaptrade, a time-of-the-essence sale of land, and the aircraft operating lease in Celestial Aviation.
Verdict: The Supreme Court unanimously dismissed the canal company’s appeal. The licence gave Vauxhall sufficient possessory rights for the court to grant relief from forfeiture. The exercise of the trial judge’s discretion to grant that relief was not under appeal.
